How to Choose a Factoring Company

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Do your homework when searching for a factoring company. Never settle for the first factoring company you see in a Google search or an online article. Finding the right factoring company for your business requires diligence, but it's time well spent and it can save you a lot of headaches and trouble. As you'll see in this article, a variety of factors such as company reputation, factoring costs, and contract terms will influence your decision.

Look for Reputable Factoring Companies

The wild world of online reviews isn't always the most accurate place to find information about a company, but it's a place to start. It's important to weed through the spammy reviews and look for comments that give you insight into factoring companies. Look for clues and tidbits on how a factoring company treats its clients and how responsive they provide customer service. You'll want to avoid factoring companies that are difficult to contact or don't respond in a timely manner.

Selecting a factoring company involves research, time and know-how.

Finding objective information about a company can be extremely difficult, if not impossible. Your best resource is the FactoringClub directory of over 100 factoring company listings with in-depth detail and information. FactoringClub also has free broker and consulting services. They can give you an independent opinion about a particular factoring company or recommend a factoring company for your needs.

Talk to a Company Representative

Call several factoring companies and gauge the attitude, helpfulness and transparency of the company representative. When talking to the company rep, ask yourself the following questions:

Is the sales person really interested in your business?

Can the representative answer questions knowledgeably and clearly?

Are their factoring fees transparent and easy to understand?

Jot down your initial impressions about the company during your conversation. Later, you can review your notes if you can't clearly remember the discussion.

Compare Factoring Costs

Present your company's situation and cost factors to prospective factoring companies. A factoring company should give you an idea of their cost based on the following:

How much you intend to factor per month.

The expected average invoice days outstanding.

Your customers' credit-worthiness.

Some factoring companies calculate costs on a weekly, monthly or even daily basis. Others may determine costs based on a flat, one-time fee, no matter the collection days outstanding. Flat fees are usually better if your invoices are outstanding more than 45 days. Weekly or monthly rates can get very expensive if your collections age more than 45 days.

Most factoring companies can give you a good idea over the phone how much it will cost. They should at least give you a ballpark estimate before you have to complete an application. However, don't be surprised if your rate changes later due to incorrect or additional information obtained during the application and approval process.

Compare these factoring scenarios with an invoice amount of $10,000 and collections days of 60 days.

Flat Rate

Rate: 4.5% flat rate

Invoice amount: $10,000

Collection Days: 60 days

Cost: $450

Best Use Scenario:

Flat rates are best used when your collections days are high.

Adjustable Rate(Not Pro-rated)

Rate: 0.7% per week

Invoice amount: $10,000

Collection Days: 60 days

Cost: $630

Best Use Scenario:

Adjustable rates are best used when your collections days are low.

Adjustable Rate(Pro-rated daily)

Rate: 0.7% per week

Invoice amount: $10,000

Collection Days: 60 days

Cost: $600

Best Use Scenario:

Pro-rated rates are the best type of adjustable rates because you only pay for actual collection days!

Find a Factoring Company in Your Industry

In addition to finding a factoring partner who will work with you and provide exceptional customer service, you also want to ask the company if they provide factoring services in your industry. Although the accounts receivable financing is pretty standard, there are some industries that require a factoring specialist. These industries include:

If you conduct business in one of these industries then you need to find an invoice factoring company that has experience with your industry. Just like you would want to find a dermatologist to take care of your skin problems or a podiatrist to take a look at your foot problems, finding a factoring specialist ensures you get the best possible factoring service.

Find a Factoring Company Nearby

With the help of FactoringClub, you can find a factoring company in your home state or city. FactoringClub makes the process very simple and quick. For example, if your business is in Texas, you can quickly view the following searches to find a factoring company in your state or city:

Additional Fees

There may be setup costs incurred when you arrange to receive services from invoice factoring companies. Those fees may include a basic application processing fee, as well as due diligence fees that the factoring company charges to perform credit checks on your customers or run background checks on your company. Some factoring companies will negotiate with you on these fees. Many factoring companies don't charge setup or application fees.

Another common fee is a monthly minimum fee. Ask the factoring company if they require a monthly invoice volume amount. Some factoring companies charge a fee if you don't meet a minimum invoice amount per month. This is common if you negotiated a lower rate based on an expected volume. Otherwise, avoid monthly minimum fees, especially if your sales are seasonal or sporadic.

As with many business services, fees might not be set in stone. You may be able to negotiate terms according to your company's situation. Don't be afraid to ask.

Contract Terms

All factoring companies have contract terms regarding termination and cancellation fees. Be careful with contracts requiring a long-term contract (more than one year) or expensive cancellation fees. Many factoring companies only required 30 days notice. As with many business services, terms might not be the same for all companies. You may be able to negotiate terms according to your company's situation. Don't be afraid to ask.

FactoringClub.com is the premier source of information for invoice factoring companies. With factoring companies in most major cities and states, FactoringClub helps you find the right factoring company. Search our listings or call our factoring experts at (866) 748-7111 for assistance.

Rick Hultz is the owner of FactoringClub, a nationwide directory of over 100 invoice factoring companies in North America. Rick is an invoice factoring broker and consultant for small to medium-size businesses.